First Analysis - Am I anywhere in the ballpark of reality?
I am going to preface this with I am a completely new investor (0 deals under my belt, but will buy at least one property in 2018). I would like to do some variation of a house hack in San Diego (ADU/SFH-MFH conversion/small MFH rehab).
Browsing Real Estate Websites
I was looking at Zillow last Friday and found this listing (it is now pending sale), and thought "maybe this single story 5/3 could be split into 2-3 units?" I saw the property was zoned RM-2-5 and the lot is large enough to accommodate 3 units, so I got excited. I wanted to walk through it thinking I would pay a contractor for his time to explain what he sees and recommends, but haven't yet met a good contractor with this type of expertise. It's a foreclosure and the listing price seems to be ~the remaining debt balance, but I imagine the bank would be willing to take less since it has been posted for so long. Is this a correct assumption?
If you came across this listing and it wasn't yet pending sale, what would go through your mind? Would you pass on it immediately; if so why? If you would view the property, what caught your eye?
*Please recognize this is all hypothetical, as one walk through of the property could wreck the entire opportunity. I'm going through this exercise to understand what I must tweak in my mental analysis to qualify or disqualify properties as I see them on the MLS.*
Rehab Costs (pulling numbers out of thin air)
I have no idea what rehab costs would be for this property and would need an experienced investor/contractor to help me understand. That said, these numbers came to mind and I wanted to understand if these were even in the right ballpark. I thought maybe offer $325k-$350k (think they'd take $300k?) rehab at $100-$125k, all in for $450k + closing costs. I'm looking to house hack so assuming everything panned out, I would move into one of the "units" that we created and once the rehab is complete, rent out the other units (In total have a 2/1 + 2/1 +1/1).
Funding
Cash savings set aside for Real Estate ($8,800) + What I could loan myself from my retirement account ($12,428) = Total personal investment of $21,228.
My first thought was that I would have to use an FHA loan due to low down payment, and probably a standard 203(k) to help cover the rehab costs. Using FHA, especially 203k, would probably not be something a bank would want to consider on a foreclosed property, am I right?
A Conventional Rehab Mortgage would require 5% down, which means I'd need more money. I could stretch and put in enough money to meet the 5% down requirement. Not sure if this would make me more attractive to the seller (bank) at all.
Numbers
I've been playing around with the BP Rental calculator, assuming $450k purchase price and $0 rehab (since I need the rehab wrapped into the mortgage), and this doesn't cash flow under my assumptions. That said, our housing expenses would drop from $1850 in rent to paying less than $1200/month as long as I lived in it. I put some rent slightly lower than market rates (assuming 2/1, 2/1, 1/1), because I figured there would be less open space (living/dining area) inside each unit. I put capex and repairs a lower percentage since I would have just rehabbed it. I have no idea if my cost inputs are accurate - would love some feedback on how to come to more reliable and accurate numbers when analyzing a deal like this. @Brandon Turner, those webinars help me understand how to use the calculators, but I still gotta learn to input accurate numbers! :)
Ok, that was long. Please tear apart my process: let me know what is stupid, but also tell me why. How can I improve? What didn't I think of that I should have considered? The more feedback the better; I'm just looking to learn fast so I can make my first purchase and get the ball rolling. Thanks!
@Kevin Fox, I know you work with investors here in San Diego. @Justin R., I know you have done single-family to multi-family conversions in this market. Thoughts?